Building your credit score is one of the most challenging mission nowadays, but Americans sometimes make unconsciously action hurting your score. According to NerdWallet survey, the most common mistakes hurting you a big score are carrying a balance, closing a credit account, not paying a bill on time. Pointing out these mistakes and avoiding it immediately become a major part to achieve your 680 credit score.
#1 Carry a balance
I recently read this topic on Yahoo! Answer, and there are around two third of comments saying that carrying a balance from month to month improves your credit score.
Well, I don’t know where they learnt about “this hypothesis” but this is totally ridiculous. Keeping your balance in credit accounts is the reason you going to a badly debt because the creditors charge you on this amount in a very high interest rate. In term of credit score building, this balance increases your utilization rate, and we all remember the lower utilization rate the better high score (30%).
Best practice: Ideally you pay the monthly balance off, this really helps you instead of a wrong advice from the internet. Keeping your account in a good position is your target and boost your credit score to 680 faster.
#2 Cancel credit accounts
When coming to credit utilization rate, we know this calculates how much of available credit you are spending, closing credit accounts isn’t a wise move logically.
This action hurts your credit score by going the utilization up because when your balance is a fixed number, the higher credit limit the lower utilization rate.
For instance, you tried to pay off an account and thought now you’d be free from this. You could miss something. Firstly, your utilization rate which weighs 30% in your credit score validation, gets higher. Secondly, if you paid the balance in full and kept active this, the account could benefit your score as the no.1 advice above and a better payment history.
Best practice: You should leave your paid-off account open. To maintain this, you use this account for small payment and pay the balance all every month.
Related story: What determines your credit score?
#3 A late payment won’t drain your 680 credit score
82% of Americans ignore a fact that paying a bill late will hurt your credit score. Your bill normally has an extension of 30 days after the due date, so creditors open a room for you not to report to credit bureaus in a month. However, beside this story, you’d be charged a late payment fee in a superb high penalty rate. There is a chance you would probably not pay attention for the payment within 30 days period, then it hurts your score substantially since this factor weighs 35% in your credit score.
Best practice: Keep in mind, paying a bill late is a serious matter on your 680 credit score target, you must pay bills as soon as possible for 2 big benefits: a good payment history and an additional fee.
#4 Opening multiple cards improves credit score quickly
91% of Americans don’t know a truth that carrying multiple credit cards doesn’t give your score a bump. In short term, this action rewards you some scores because it increase your credit limit, lowers the utilization rate. But in term of a direct effect in long run, it doesn’t help much due to the credit balance as a bigger part of utilization measurement, and the messy credit management would make you wrong.
Best practice: if you have one or two cards, you can spread your credit limit by applying some new cards, ideally there are 5 cards. As long as getting new credit cards, you should choose type of cards which reward you as much as possible, or use new cards for a backup plan.
#5 Don’t know the rules in interest and rewards
When you have a healthy credit status, you can ask creditors for lower interest or maximize rewards. If you are building a higher score (hence 680 score), understanding how interest works is a big key.
Nerdwallet survey reveals that 55% of American consumers don’t know when lenders charge their purchase. Actually, your purchase via credit cards would be charged you a peny as long as you pay the bill in full on time. Keep your mind in due payment date is very important to prevent from additional fee and debts and maintain a precious positive payment history.
Best practice: Try your best to pay the balance off each month. If you can’t make it, find a credit card with lower rate to pay for this bills.
Related story: Pay a credit card with another credit card
Share your own experience with us in the comment box, we will seek for the solution.